Remove home office deduction via amended return

[rwom1217]

Am I allowed to remove home office deductions from a home business via an amended return (both 2020 and 2021)?  I discovered today that it can affect capital gains when selling the home, and my deduction amount is not enough to worry about/keep track of that.  I'd rather pay more in this instance and keep things simple.

[Anonymous_]

Did you use the simplified method or actual expenses.

See https://www.irs.gov/publications/p587#en_US_2022_publink1000283

[rwom1217]

I used actual expenses.

[fanfare]

amend your return to use the "simplified method"

you still have time to amend a 2020 return for a refund.

There is no time limitation for a tax return if the "amount you owe" is going up.

@rwom1217 

[Anonymous_]

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@fanfare wrote:

amend your return to use the "simplified method"

you still have time to amend a 2020 return for a refund.

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If actual expenses were used, that would include depreciation deductions and those were taken on income tax returns for two or more consecutive tax years (2020 and 2021).

As a result, switching would (or at least might) be considered a change in the method of accounting which requires that Form 3115 be filed (in this case there would be a positive Section 481(a) adjustment).

[AmeliesUncle]

In my opinion, it is FAR more work and worry to amend, then to keep track of the depreciation (and the program should be keeping track of the accumulated depreciation anyways).

As was indicated by another comment, unless you use the Simplified Method, the depreciation will affect thing when you sell the home.  But that tax-savings now is usually larger than any tax-cost when you sell the home.

[Carl]

I discovered today that it can affect capital gains when selling the home, and my deduction amount is not enough to worry about/keep track of that. I'd rather pay more in this instance and keep things simple.

Be aware and understand this:

If you did not use the simplified method, then when you sell the property/asset you are required to recapture and pay taxes on the depreciation you "SHOULD" have taken, in the tax year you sell the property/asset.

So if you are going to remove and not claim the home office at all, then no problem. Otherwise, switch to the simplified method.

[rwom1217]

Recapture is one of the things I want to avoid dealing with.  I spoke with an accountant about simplified vs actual, and he said using simplified is better for this reason.

[rwom1217]

Are these things TT figures out and does for me?

Also, my original question was that it was allowed at all, which it sounds like it is.

[Anonymous_]

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@rwom1217 wrote:

...I spoke with an accountant about simplified vs actual, and he said using simplified is better for this reason.

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That part is true; no recapture with the simplified method.

[Anonymous_]

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@rwom1217 wrote:

Are these things TT figures out and does for me?

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TurboTax does not make that determination; the user chooses the option and enters the information the program requests to be entered.

[Anonymous_]

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@rwom1217 wrote:

Also, my original question was that it was allowed at all, which it sounds like it is.

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Once an election is made for a tax year, it is irrevocable.

How that is applied to amending returns for prior tax years might be an open issue.

I'll page @AmeliesUncle for input on that issue, but it appears to me that if it is, in fact, irrevocable, it would not be able to be changed at a later date (such as on an amended return). @AmeliesUncle?

[rwom1217]

That's a bummer, but certainly good to know.  Does that also apply to using standard deduction vs actual expenses?

On a related note, Let's say many years down the road I sold my home and had some proceeds subject to capital gains.  Would the taxed amount be different based on only having the office deduction for a couple years vs having it for numerous years, or is it sort of a do it once and it's stuck there forever sort of thing?

I appreciate all your help btw.

[Anonymous_]

The recapture (based upon the accumulated depreciation deductions taken) will never disappear unless you pass away with the property in your estate.

However, it should be a relatively small figure and the tax would be capped at 25% (based upon your other income/gain). 

[rwom1217]

Does it "grow" with each year it's taken, or is it a one and done sort of thing?   If I've already taken it once, is there a difference in taking it again and again in following years vs not taking it moving forward?

Also, if I can't remove the home office deduction entirely via an amendment, am I allowed to change it from actual expenses to the simplified deduction with an amendment? (I'm aware this will likely cost me $).